OxfordAQA A-Level Business: Finance (9725) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.2.3 Finance of the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1: 3.2.3.1 Sources of finance, 3.2.3.2 Break-even analysis and 3.2.3.3 Profit and cash. All of it is International AS content (Unit 2), examined from May/June 2027; none is International A-level only. If you are finishing the older 9625 specification, use your own specification. All businesses are invented.

Links: Finance study guide · Finance revision notes · course hub · printable checklist · free 10-minute diagnostics

Questions

1. State two internal sources of finance. [2]

2. Explain one advantage and one disadvantage of crowd funding for a business that is just starting up. [4]

Questions 3 to 5 use this information. Fernhollow Pottery sells hand-made mugs at £24 each. Variable cost is £9 per mug and fixed costs are £6,300 a month.

3. Calculate Fernhollow’s break-even output per month. [2]

4. In one month Fernhollow sells 560 mugs. Calculate the margin of safety and the profit for that month. [4]

5. The price of clay rises, so variable cost increases to £11 per mug. Price and fixed costs do not change.

(a) Calculate the new break-even output. [2] (b) Explain how this change would appear on Fernhollow’s break-even chart. [2]

6. Thornbury Optics Ltd reports: revenue £900,000; cost of sales £495,000; operating expenses £288,000; interest £18,000; taxes £22,500. Calculate Thornbury’s gross, operating and net profit margins. [6]

7. Complete the budget statement for Pellmore Garden Supplies. Calculate the missing figures and label each variance favourable (F) or adverse (A). [4]

Item	Budget (£)	Actual (£)	Variance (£)
Revenue	72,000	68,400	?
Materials	21,600	20,520	?
Labour	18,000	18,900	?
Overheads	15,000	15,000	0
Profit	17,400	?	?

8. Pellmore has an opening cash balance of £3,200. Complete its cash flow forecast. [4]

£	Month 1	Month 2	Month 3
Total inflows	14,500	15,200	19,000
Total outflows	16,900	17,600	15,300
Net cash flow	?	?	?
Opening balance	3,200	?	?
Closing balance	?	?	?

9. Hollinsby Electrical has revenue of £547,500, cost of sales of £328,500, trade receivables of £63,000 and trade payables of £16,200. Calculate its receivables days and payables days. [4]

10.

(a) Explain the difference between profit and cash. [2] (b) Explain the difference between profit and profitability. [2]

11. Larkspur Textiles makes curtain fabric and sells it to retailers on credit. Its revenue is £876,000 and its trade receivables are £144,000. Larkspur is short of cash and is choosing between debt factoring and offering retailers a discount for paying early.

(a) Calculate Larkspur’s receivables days. [2] (b) Analyse whether debt factoring or an early payment incentive would better improve Larkspur’s cash flow. [6]

12. Mina is starting Kilnworth Coffee Roasters. She needs £75,000 for a roasting machine and to fit out a unit, and has £15,000 of her own savings. A business angel offers £60,000 in return for 30% of the shares. Alternatively, Mina could apply for a five-year bank loan of £60,000. Evaluate which source of finance Mina should choose. [9]

Answers

1. Any two: retained profits [1]; sale of assets, sale and leaseback, or working capital [1]. [2] Examiner insight: “State” needs only the names, but trade credit and overdrafts are external sources, so listing them here earns nothing.

2. Advantage: the business can raise money from many small backers without a trading record [1], and a successful campaign shows there is demand before the business commits to production [1]. Disadvantage: if the campaign misses its target the business may receive nothing [1], and putting the idea online lets competitors see and copy it before launch [1]. [4] Examiner insight: Each “explain” point needs a reason or consequence after it; a one-word advantage such as “cheap” gives the examiner little to credit.

3. Contribution per unit = 24 − 9 = £15 [1]. Break-even = 6,300 ÷ 15 = 420 mugs [1]. [2] Examiner insight: Write the contribution line separately; if the final figure is wrong, visible working is the only evidence of correct method.

4. Margin of safety = 560 − 420 [1] = 140 mugs [1]. Profit = 140 × £15 [1] = £2,100 [1]. [4] Examiner insight: Margin of safety here is in units, so write “mugs”, not “£”; the long route (revenue £13,440 − total costs £11,340) gives the same profit and is a useful check.

5. (a) New contribution = 24 − 11 = £13 [1]. Break-even = 6,300 ÷ 13 = 484.6, so 485 mugs [1]. (b) The total cost line becomes steeper but still starts at £6,300 on the vertical axis [1]. It now crosses the revenue line further to the right, at a higher output, so break-even rises [1]. [4] Examiner insight: Round break-even up, since 484 mugs would still leave a small loss; and in part (b) say which line moves, because “the chart changes” describes nothing.

6. Gross profit = 900,000 − 495,000 = £405,000 [1]; gross margin = 405,000 ÷ 900,000 × 100 = 45% [1]. Operating profit = 405,000 − 288,000 = £117,000 [1]; operating margin = 13% [1]. Net profit = 117,000 − 18,000 − 22,500 = £76,500 [1]; net margin = 8.5% [1]. [6] Examiner insight: Show each profit figure before its margin and include the % sign; a margin worked out over cost of sales instead of revenue is a different (wrong) ratio.

7. Revenue 72,000 − 68,400: £3,600 A [1]. Materials £1,080 F and labour £900 A [1]. Actual profit = 68,400 − 20,520 − 18,900 − 15,000 = £13,980 [1]. Profit variance = 17,400 − 13,980 = £3,420 A [1], which checks: 1,080 − 3,600 − 900 = −3,420. [4] Examiner insight: A variance needs both the amount and F or A; give “3,600” with no label and the answer is incomplete.

8. Net cash flows: (2,400), (2,400), 3,700 [1]. Month 1 closing = 3,200 − 2,400 = £800 [1]. Month 2 opening £800, closing 800 − 2,400 = (£1,600) [1]. Month 3 opening (£1,600), closing −1,600 + 3,700 = £2,100 [1]. [4] Examiner insight: Carry each closing balance across as the next opening balance and bracket negatives clearly; a missing minus sign changes every later figure.

9. Receivables days = 63,000 ÷ 547,500 × 365 [1] = 42 days [1]. Payables days = 16,200 ÷ 328,500 × 365 [1] = 18 days [1]. [4] Examiner insight: Receivables go over revenue but payables go over cost of sales; swapping the denominators is the usual slip.

10. (a) Profit is revenue minus costs for a period, counted when sales are made [1]; cash is money actually in the bank, so a credit sale adds to profit now but to cash only when the customer pays [1]. (b) Profit is an absolute amount [1]; profitability measures profit relative to revenue, such as a profit margin, so a larger firm can make more profit yet be less profitable [1]. [4] Examiner insight: Use a short example in each part; it shows understanding, not a memorised definition.

11. (a) Receivables days = 144,000 ÷ 876,000 × 365 [1] = 60 days [1]. (b) Debt factoring turns most of Larkspur’s £144,000 of invoices into cash almost at once [1], so cash no longer waits about 60 days for retailers to pay [1]. But the factor keeps a fee, reducing Larkspur’s profit on every invoice factored [1]. An early payment incentive could bring cash in within days for retailers who take it [1], but the discount reduces revenue and retailers who are short of cash themselves may ignore it, so the benefit is uncertain [1]. Judgement: if Larkspur needs cash urgently, factoring is more reliable; if the gap is small, the incentive may be cheaper – it depends on how many retailers respond [1]. [8] Examiner insight: “Analyse” asks for chains of reasoning tied to Larkspur’s 60-day figure; generic lists of advantages earn little without that link.

12. For the business angel: no repayments are due while sales are still building, which protects a start-up’s cash flow [1]; the angel may bring experience and contacts in the coffee trade [1]. Against: Mina gives up 30% of the shares, so 30% of future dividends and some control [1]. For the loan: Mina keeps full ownership and all future profit [1]; fixed repayments make cash flow forecasting easier [1]. Against: repayments and interest start straight away, before the business is established [1]; with no trading record the bank may demand security such as a personal guarantee, or refuse [1]. Judgement: the angel is probably more appropriate because a new roastery’s early cash flow is uncertain [1]; but if Mina expects strong sales quickly and values control, the loan keeps the business hers – it depends on how fast sales grow [1]. [9] Examiner insight: An “Evaluate” answer needs a clear recommendation and a “depends on” that uses Kilnworth’s facts (the 30% stake, the start-up stage, the £60,000 gap); balanced points with no decision leave the judgement credit unearned.

Where marks are usually lost

• Dividing fixed costs by price rather than by contribution per unit.
• Rounding break-even output down, or leaving a decimal.
• Giving variance amounts without F or A.
• Treating a cost above budget as favourable because the number is bigger.
• Using the wrong opening balance in month 2 or 3 of a cash flow forecast.
• Putting payables over revenue instead of cost of sales.
• Subtracting only interest, or only taxes, to reach net profit.
• Listing finance sources without linking them to the amount, time period, control and stage of the business.
• Ending an “Evaluate” answer without a recommendation.

Next steps

• Finance revision notes
• Finance study guide
• Marketing practice questions
• OxfordAQA A-Level Business course hub
• Printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards, published by OxfordAQA. Section 3.2.3 Finance.